Stocznia Gdanska SA v Latreefers Inc

For an unregistered foreign company, the court may exercise the winding-up jurisdiction where three core requirements are satisfied: a sufficient connection with England and Wales; a reasonable possibility of benefit to the petitioner or creditors; and persons interested in the distribution of assets who are subject to, or submit to, the jurisdiction. Assets within the jurisdiction are not an essential additional requirement.

Potential misfeasance, wrongful-trading and fraudulent-trading claims may provide the necessary benefit, even though such claims were not existing company assets when the petition was presented. Champerty or third-party funding does not itself justify a stay. The question is whether the particular arrangement creates an abuse or threatens the integrity of the court’s process.

A non-party costs order under section 51 is governed by what justice requires in all the circumstances.

Latreefers Inc, a Liberian company, entered into shipbuilding contracts with Stocznia Gdanska SA. After default and judgment for an unpaid instalment, the Yard petitioned in England to wind up Latreefers.

Lloyd J appointed provisional liquidators, then made a winding-up order and ordered Latco, Latreefers’ parent company, to pay costs increased by its opposition. Toulson J refused to stay related Commercial Court proceedings or order disclosure concerning a third-party funding agreement.

The appeals concerned the English court’s jurisdiction to wind up a foreign company, the relevance of potential claims against directors, whether the funding arrangement was champertous or abusive, and the section 51 costs order.

1. Winding-up jurisdiction. The court dismissed Latreefers’ appeal. Section 221 of the Insolvency Act 1986 gives power to wind up an unregistered foreign company, subject to the established judicial constraints on exercising that power. The three core requirements are:
   1. a sufficient connection with England and Wales, which need not consist of assets in the jurisdiction;
   2. a reasonable possibility of benefit to the petitioner or creditors; and
   3. persons interested in the distribution of assets over whom the court can exercise jurisdiction.
2. The presence of assets in England is not an essential fourth requirement. Assets are ordinarily a good reason for exercising the jurisdiction, but what is sufficient in a normal case is not necessary in every case. The core requirements were satisfied here.
3. Potential misfeasance claims concerning the directors’ conduct and the disposal of the CFM deposits provided a reasonable possibility of benefit. Claims under sections 213 and 214 of the Insolvency Act 1986 could also be pursued by an English liquidator against directors of a foreign company. The court accepted that such claims were available without deciding the issue of dissolution of a foreign company under English law.
4. The Tangent debt could not be relied upon because later evidence established that it had been repaid before the petition. The court had to determine the appropriate order on the facts as now shown to have existed when the petition and winding-up order were made.
5. Champerty and abuse. The court dismissed the appeals against Toulson J’s order and held that the funding arrangement did not make the proceedings an abuse. Whether a division of litigation proceeds threatens the court’s process depends on the facts. A large disparity between a funder’s pre-existing interest and potential profit may be relevant, but is not decisive. The funders had a substantial commercial interest, assumed liability for adverse costs, and had no control over conduct or settlement. The discovery application was therefore unnecessary.
6. The possibility that the agreement might technically be champertous did not itself justify a stay or invalidate the underlying proceedings. Nor would a costs order enforce the agreement or breach the indemnity principle.
7. Section 51 costs. The court dismissed the appeal against the order requiring Latco to pay costs attributable to its opposition. The discretion is whether, in all the circumstances, it is just to order a non-party to pay. No additional fixed test or general guidelines were required. Lloyd J had properly exercised that discretion, and the order was plainly right on the facts.

• Court of Appeal (Civil Division): appeals by Latreefers, Latco, Mr Henriksen and Latmar dismissed. The orders of Lloyd J dated 21 December 1998 and 27 May 1999, and Toulson J dated 10 June 1999, were upheld.
• High Court: Lloyd J made the winding-up order and section 51 costs order; Toulson J refused a stay and disclosure concerning the funding agreement.